King Baudouin Foundation, Belgium

The King Baudouin Foundation (KBF) is an independent foundation which is active at Belgian, European and international level. Its activity areas are poverty and social justice, democracy in Belgium and the Balkans, heritage, philanthropy, health, leadership, local engagement, migration, and development. The foundation was created in 1976 to mark the 25th anniversary of King Baudouin’s reign.

Luc Tayart de Borms, Managing Director

The onset of the financial crisis coincided with KBF’s Philanthropy Day, on 30 September 2008. Despite the urgency of the crisis, the more than 600 participants were upbeat about the potential of philanthropy to make a difference. This brought home to me and to others at the foundation that we have responsibilities to the communities we serve – in bad times as well as good.

Our philosophy concerning our endowment is that, as an investor in equity markets, we must ride the ups and downs of the real economy. If in the wake of the meltdown all foundations with significant equity positions had retreated to cash, they collectively would have brought global markets even closer to a complete implosion. We also believe that we have responsibilities to our donors and our beneficiaries. We do not consider our work a luxury only to be undertaken during the good times. When the financial crisis hit, we were faced with hard decisions – how best to manage our portfolio and streamline operations?

In considering our portfolio, we found ourselves – like many foundation managers –floundering, awash in a sea of conflicting financial and investment advice. We wanted to avoid this ‘expert trap’ because in the short term, no one knows what the best strategy is.

By the end of 2008, we had lost 30 per cent of the market value of our endowment. However, since 1988, our annual return has been 5.6 per cent and we have spent about €5 million per year – €100 million in total – from our endowment. So the ‘snapshot’ shows that we have lost 30 per cent, but the ‘film’ demonstrates that our annual return is steady at 5.6 per cent. We receive legacies, and between October 2008 and May 2009, these brought in €17 million, including €800,000 unearmarked cash. We also receive annual funding of €12 million from the Belgian National Lottery, guaranteed until 2010.

Against this backdrop, we took a ‘no selling’ approach, with the exception of some high-yield bonds, which comprise just 5 per cent of our portfolio, which we sold to create cash for the 2009-2011 budget. The foundation still holds its equities, which have gone down in value but are expected to go up again. At the end of August we decided to add the asset class of buy-and-sell credit. We are waiting for the dust to settle before making any other investment decisions.

We decided to continue with our pay-out rate of 4.5 per cent of the market value of our endowment in our 2009-11 budget and to implement our strategic operating plan as was decided in June 2008. We resolved that, come what may, we would maintain our 2009 level of spending throughout 2010 and 2011.

However, we did have to make some budget adaptations for the budget year 2009 – a cut of about 17 per cent. This was achieved partly by cuts in projects on a case-by-case basis, partly by having less ‘free money’ (our budget for responsive grants and exceptional support), and partly by making staff cuts – of about 10 per cent. Our permanent staff has been reduced from 58 to 52 as a result of case-by-case considerations and early retirement initiatives. Staff did not receive a pay rise in 2009 and management took a small cut in remuneration.

At the same time, we decided to be anti-cyclical. We dedicated an extra €450,000, on top of the agreed 2009 budget, to a new ‘crisis project’ tackling the issues of unemployment and training for young people in Belgium, particularly those from migrant backgrounds, and to a lecture series featuring speakers with new ideas – and new inspiring paradigms – on shaping the future.

Our primary concern during the crisis is for the civil society actors with whom we work and all of those associations that are experiencing financial difficulties. Herein lies our major challenge for the coming years: how can we help soften the impact of the crisis among the most vulnerable in our society?

The King Baudouin Foundation’s anti-cyclical approach is not simply a question of moral obligation – it is also an investment in our common future. Significantly reducing our financial support and involvement, even temporarily, would run against our mission, which is ultimately to provide an added value to society. It would be sacrificing the long-term future to soften the short-term impact of a recession. I am sure that our many donors – and beneficiaries – share this conviction.

For more information
Contact Luc Tayart de Borms at Tayart.L@Kbs-frb.be or visit www.kbs-frb.be